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November 21, 2013

Everybody knows that the dice are loaded Everybody rolls with their fingers crossed Everybody knows that the war is over Everybody knows the good guys lost Everybody knows the fight was fixed The poor stay poor, the rich get rich That's how it goes Everybody knows

What everybody doesn't seem to know is how to get Congress to listen to the needs of the innovation community when well-heeled sectors put their lobbying and financial support in favor of legislation purportedly aimed at improving innovation ("It's a jobs bill!") by changing the rules of the patent system in their favor. But since various stakeholders have made the effort it is well for us at least to listen to what they have to say.

The Higher Education Community

In a statement released November 8, 2013, the Association of American Universities (AAU), American Council on Education (ACE), American Association of Medical Colleges (AAMC), Association of Public and Land-grant Universities (APLU), Association of University Technology Managers (AUTM), and Council on Government Relations (COGR) "communicated the[ir] views" on the provisions of H.R. 3309 (oxymoronically entitled "The Innovation Act"). (As with most of these letters and communiques, the Chairman is extolled for the "open, thoughtful process" and the goals of the bill lauded as being directed to "reduc[ing] abusive patent litigation," which putatively has a "corrosive impact on the U.S. patent system and the capacity of that system to foster innovation and economic competitiveness. With that as prelude, the authors should have expressly conceded that their aim was merely to rearrange the deck chairs rather than challenge the shaky assumptions behind the legislation; the only hint of disagreement is that the measures proposed in the bill may be "overbroad" and lead to "unintended consequences. To whom they would be unintended is unclear, but the universities clearly state that any such negative consequences would be suffered by them.) Nevertheless, this stakeholder missive provides specific commentary on the various provisions of the bill:

• The fee-shifting provisions. The first example of overbreadth is the scope of the statutes where fee-shifting would be mandated, including "the Space Act, the Atomic Energy Act, the Non-Nuclear R&D Act as well as all titles of the omnibus bills in which the Bayh-Dole Act and amendments became law." These provisions would impact not only "abusive" litigation practices but also ones that fall within the scope of "ordinary enforcement procedures and litigation activities," the authors not recognizing that the supporters of this bill believe that "ordinary enforcement procedures and litigation activities" are themselves abusive (insofar as they are directed at such supporters). The statement recognizes that fee-shifting will occur in the ordinary course against non-prevailing patentees due to the "burden of proof and substantive standards" imposed upon the nonprevailing party by the bill. This outcome will have a "chilling effect" on impecunious parties, like universities, small businesses and startups, the statement asserts, and instead the university groups suggest that fee shifting should be limited to cases where the nonprevailing patentee plaintiff "is not the named inventor of or an original assignee to an asserted patent and does not make or sell a product related to the subject matter described in the asserted patent."

• Joinder provisions under Sec. 299(d). Here, it is the definition of the term "interested party" that is purportedly overbroad according to these stakeholders. The risk, they recognize, is that in combination with the fee-shifting provisions universities will be put at risk in litigation by their licensees, resulting in an "unfunded mandate" against them. This would result in "a substantial disincentive for universities and startups to enforce patents on new technologies and innovations," which while true would return the situation regarding university inventions to pre-Bayh-Dole status, where companies could simply steal university inventions with impunity.

• The pleading requirements under Sec. 281(A). This objection is merely practical, wherein a patentee plaintiff is charged with making averments in a complaint that may not be known until after discovery, and if not permitted to amend may foreclose relief for certain activities. (Not mentioned is the practical effect of the requirement, since the scope of discovery is defined in large part by the allegations of the complaint that define relevant evidence.)

• The "transparency" of patent ownership under Sec. 4. Again, the objection is a practical and logistical one, insofar as the breadth of the requirement (which exists for the life of the patent) "may well exceed the capacity of even the best-intentioned plaintiff to acquire and provide."

• The discovery limitations under Sec. 299(A). While clearly viewed as posing the greatest risk in conjunction with the pleadings requirements discussed above, the statement also notes that the judiciary has the ability to limit discovery when necessary and the blanket limitations imposed by the bill "could make it more difficult to provide information called for in other sections of the bill and could militate against cases where allowing broader discovery would be more efficient."

• Changes in the provisions of the Leahy-Smith America Invents Act. These objections are concerned with expanding the scope of post-grant review of covered business method patents, and narrowing the extent of the estoppel that attaches to petitioners who employ the new post-grant review procedures. The universities are concerned that the former will sweep into the scope of these reviews patents other than "pure" business method patents (few of which are owned by universities) and that removing the "reasonably could have raised" estoppel will promote patentee harassment by "extending, rather than limiting, patent litigation."

The Biotechnology Industry Organization (BIO)

The letter from BIO, although less obsequious in tone than the university groups' letter, similarly praises at least the intent of the bill. But the letter (signed by BIO President and CEO, Jim Greenwood, himself a former Congressman) is front-and-center regarding the potential for the legislation to "erect unreasonable barriers to access to justice for innovators, especially small start-ups." The letter also sounds a caution against legislative solutions to what are essentially problems (insofar as they exist) in judicial administration, better handled by the judiciary in BIO's view (and the view of several members of the Federal Circuit; see below).

BIO begins with the parts of the bill it can support: protecting IP licenses in bankruptcy cases; harmonizing claim construction standards applied by the PTO and the courts; and clarifying the judicially created doctrine of obviousness-type double patenting (particularly under the "first-inventor-to-file" provisions of the Leahy-Smith America Invents Act); and the "recognition [in the bill] of the already existing and specific statutory schemes that apply to [ANDA] litigation." Of concern, however, are the following provisions of the bill:

• "Routinely defer[ring] or suspend[ing] discovery and litigation on the merits in patent infringement cases";• "Permit[ting] infringers to add additional parties to the litigation under overly broad criteria and permitting [prevailing] parties to seek reimbursement of [] litigation costs against other parties under a vaguely-defined and potentially very broad set of patent-related cases";• "Requir[ing] unreasonable amounts of pleading specificity and disclosure and public recordation of patent ownership, litigation interests, and other business or confidential information";• "Direct[ing] courts and judges [on] how to handle patent case management in an overly-prescriptive and one-size-fits-all manner that would unduly interfere with the responsibility of judges and courts to craft case-appropriate management orders that reflect the complexity of the matters at issue and the respective positions of the parties"; and• "Singl[ing] out patents on certain technologies for unfavorable treatment in open-ended administrative litigation, contrary to long-standing U.S. policy and international treaty obligations."

(For many reasons, the last of these points raises particularly acute concerns, both with challenges to U.S. authority, moral or otherwise, before the WTO and with regard to advancing American interests abroad in the face of patent challenges to U.S. patentees under other national patent systems.)

The letter concludes by noting at least some of the expected consequences of enactment of these provisions: "systematic delays in patent litigation" due to "piecemeal discovery and adjudication" and the "inclusion of potentially numerous and unnecessary parties," which would increase the "time and expense of patent litigation" (here, BIO notes that such an outcome would be contrary to "the legislations purported goals"). In an effort to address the "abusive litigation practice of the few," BIO warns that the legislation will "impose unjustified burdens on too many legitimate patent owners seeking to enforce and defend their inventions in good faith."

The Pharmaceutical Research and Manufacturers of America (PhRMA)

PhRMA, in a letter to the Judiciary Committee by its Executive Vice President of Advocacy and member Relations, Chester (Chip) Davis, also raises issues similar to other stakeholders albeit with less substantive detail or supporting argument. PhRMA "commends" Congress for "considering legislation to curb abusive patent litigation" and "applauds [the Committee's] efforts" in this regard, but voices the following concerns:

• Increasing pleadings requirements, which "raises questions about the balance between having information available in pleadings and providing prompt and effective access to the courts by patent owners";• Including fee-shifting provisions for "covenants not to sue";• Restricting discovery in a way "that could serve to delay ultimate resolution of patent litigation and increase costs";• Lacking "balance" over the requirements for "transparency" regarding patent ownership;• Including a "customer suit" exception not "targeted narrowly";• Infringing on the province of the Judicial Conference and the Supreme Court regarding case management;• Eliminating Section 145 proceedings (providing for an applicant or interference litigant to appeal to the U.S. District Court as an alternative to the Federal Circuit);• Expanding the time and scope of the transitional Covered Business Method Patent [Reexamination] Program;• Limiting the scope of Patent Term Adjustment (by adopting the PTO's position regarding the availability of so-called "B" delay after filing an RCE).

Former Chief Judge Paul Michel

One of the evident benefits of being a retired, former Chief Judge of the U.S. Court of Appeals for the Federal Circuit is that it must be generally recognized that you know of what you speak, and that (if you have the proper inclination) you can speak authoritatively on proposals like H.R. 3309. Former Chief Judge Michel does not disappoint, and he recently spoke on the provisions of Chairman Goodlatte's bill.

As reported in IPLaw 360 by Ryan Davis, the former Chief Judge does not think much of the bill. In a speech at Fordham Law School's recent IP Summit, Judge Michel is quoted as saying the bill would "do more harm than good" and is "hugely counterproductive." Of these features of the bill, the Chief Judge notes that the pleadings requirements require such "excruciating detail" that they may more readily be deemed defective, resulting in an increase in motions to dismiss which will at a minimum raise the time and cost of litigating (such motions "will become routine," according to Judge Michel). Provisions requiring nonprevailing patentee plaintiffs to pay their opponents' litigation costs will "backfire" because prevailing attorneys will always seek them (fearing malpractice liability for not doing so). Not surprisingly, Judge Michel also asserted that the discovery provisions amounted to Congressional "micromanaging" of the judiciary.

But the Chief Judge saved his most strident criticism to provisions of the bill that would expand the Covered Business Methods Patent Program, calling this the "worst part" of the bill. This is because the scope of patents under this proposed expanded program would include almost all software patents and the existence of this option for such patents will lead to stays in patent litigation while the PTO procedures are exhausted.

Judge Michel predicted that "[t]he value of patents will go down and the value of patent portfolios will go down" if the bill is enacted by Congress, despite the fact that the bill is a "blunderbuss attempt to curb abusive litigation tactics by a small fraction of litigants."

The former Chief Judge conceded that he was in favor of "smart patent reform" legislation, but only by legislators who "understand how the patent system works, not by congressional staffers and lobbyists."